Microsoft plans to extend the availability of Windows XP for low-cost laptops beyond June 30, with an announcement expected later this week, according to a source familiar with the situation.June 30 is the date when Microsoft plans to stop selling most Windows XP licenses.

The announcement that Microsoft will extend this deadline for low-cost laptops is expected to be made in the U.S.

However, it seems as if it’s timed to coincide with the Intel Developer Forum (IDF) being held in Shanghai on Wednesday and Thursday.

A Microsoft spokeswoman did not respond to a request for comment on the expected announcement.

Intel is using IDF to herald the imminent arrival of handheld computers and low-cost laptops based on its upcoming Atom processors.

Many of these devices will lack the storage capacity and memory needed to run Vista.

As a result, hardware makers and industry analysts expect most to run either Windows XP or Linux.

Intel has also been working closely with Linux developers to customize the open-source operating system for handheld computers it calls Mobile Internet Devices, or MIDs.

Vista is not deemed a practical option for laptops equipped with just 512M bytes of RAM and 2G bytes of storage.

Even Vista Starter, the low-cost and stripped down version that Microsoft developed for emerging markets, still requires 15G bytes of free storage.

Another problem is Vista’s cost, which would likely push system prices beyond the $250 to $300 range where Intel hopes to see many of these Atom-based laptops priced.

Microsoft set the June 30 deadline as a way of pushing users towards Windows Vista, and the expected extension of Windows XP for low-cost laptops may not affect that objective.

Intel is setting strict guidelines for system builders that are designed to segment the laptop market by restricting features, such as screen size, that can be used with an Atom processor.

These rules are designed to make sure that low-cost laptop sales do not cannibalize sales of mainstream laptops based on Intel’s Core 2 Duo mobile processors.

June 30 of this year and Jan. 31, 2009, may be the deadlines for U.S. retailers and custom system builders, respectively, to sell Windows XP.

In addition to being available for low-cost laptops, XP will also be available for at least the next two years to those who purchased business and Ultimate versions of Vista, as well as for customers in certain geographies – as a result of exceptions Microsoft has made

Microsoft has made it widely known that it will stop distributing XP to U.S. manufacturers and retailers on June 30, while custom system builders can put XP on hardware until Jan. 31, 2009.

But what is probably less known – and not because Microsoft has been hiding the fact – is that Windows XP Starter Edition, a scaled-down version of the OS for emerging markets, will be available until June 30, 2010.

Moreover, business and end-users who have purchased Windows Vista Business or Ultimate licenses either at retail or through enterprise agreements with Microsoft have indefinite “downgrade” rights to XP as part of their license agreements, according to a Microsoft spokeswoman.

As it’s now become clear from internal e-mails made public in a class-action suit based in Seattle concerning Microsoft’s Windows Capable program, Microsoft anticipated that customers would experience device-driver and application incompatibilities with Vista when it was first released.

Giving buyers of high-end versions of Vista the option to downgrade to XP made sense in case users encountered problems.

The availability of Windows Vista Service Pack 1 now is remedying many, if not all, of these issues, users report.

With Microsoft pushing Vista, it’s unlikely the company wants XP to be the OS of choice for anyone, even if XP will be in circulation for at least the next few years because of various exceptions.

The company is promoting Vista Starter Edition for inexpensive PCs currently being sold in emerging markets, although that OS may not be a good option for the ultra-low-cost PCs that will run Intel’s Atom chips because of hardware and memory requirements.

Like the other versions of Vista, Starter Edition still requires 15G bytes of free space; most low-cost machines, however, have only 2G to 8G bytes of storage and 256M to 512M bytes of RAM.

Hackers have managed to get Vista running on the low-cost Asustek Eee PC with 4G bytes of RAM, but doing so required a complicated custom installation and an additional 1G-byte USB stick and an 8G-byte SD card to make it work.

Another thing that’s unclear is if Microsoft will let OEMs sell Vista Starter Edition, or an even more scaled-down version of it, in more mainstream PC markets such as North America.

So far, ultra low-cost PCs that run Linux like the Eee PC — which are gaining some, but not much, traction with consumers – don’t seem to be threatening Windows enough in the U.S., at least to require Microsoft to cut Vista’s price or footprint even more.